Saving Social Security
By Bernard Chapin
web posted March 15, 2004
One of the more colorful memories I have from college debate
was our frenetic use of the phrase, "We stand on the brink!" My
partner and I would spout this out mechanically in response to
any innocuous proposal the opposition made and then link their
arguments to world war, depression or a nuclear winter. I was
reminded of our promises of calamity last week after I heard
Alan Greenspan's testimony regarding Social Security and it's
being on the brink of financial insolvency.
Greenspan said little that was not already known, but our
politicians feigned surprise at his words. This was undoubtedly
an attempt on their part to avoid correcting a leaking, debilitated
entitlement program that, along with Medicare, may soon
bankrupt the nation.
The program's financial health is woeful:
"In fact, in less than 15 years Social Security will begin running a
deficit, spending more on benefits than it takes in through taxes.
Overall, Social Security is facing unfunded liabilities in excess of
$26 trillion. Trying to fill a gap that size by increasing taxes would
cripple the American economy and place an intolerable burden
on younger workers. Unless the system is reformed, therefore,
benefit cuts are inevitable."
One researcher estimated that $4.9 trillion dollars must be
invested into the program over the next 75 years to keep it
solvent without raising taxes or limiting benefits. Very soon,
Social Security expenditures will devour more of our GDP than
income taxes.
Conservatives and libertarians have long advocated that the
answer to Social Security's ailments can be found in the creation
of privatized equity accounts which would allow workers to
boost their returns far above the level of inflation and, thereby,
firmly secure their futures. A reliable future is something that
FDR's program never ensured since it could be discontinued or
modified at any time and decades of political cowardice has
worsened its inherent instability.
The rationale behind individual equity accounts is sound but not
politically viable due to the stance of the Democratic Party.
Donald Luskin explains the left's near-religious attachment to the
status quo and their reluctance to make any alterations
whatsoever:
"For liberals, Social Security is a fortress of New Deal
collectivism and paternalism that must be held fast against
conservative assaults, at all costs. What liberals fear is that,
through private accounts, system beneficiaries would become
real stakeholders in America and captains of their own financial
fates — not wards of the state, dependent on the whims of
incumbent legislators to tell them what benefits they will be
permitted to receive."
The Democrats are vested in nothing ever changing. The
inevitable tax increases which, barring reform, will be needed to
keep the checks cashing will only increase their popularity among
the rank and file. Remember, these people think taxes ARE
charity and that a dollar given to the government is 100 cents
spent on soup at a food kitchen (rather than a dollar that
disappears after being audited). Clearly, free market solutions
are anathema to the liberal intelligentsia.
Private accounts that invest in corporate stocks would also
undermine a good deal of their spin rhetoric. Anti-corporate
speeches are currently playing quite well in certain blue shaded
areas of the country, and whether these attacks are specific, as
with outsourcing, or vague, like when Al Gore promised four
years ago to protect us from the powerful forces standing against
us, doesn't seem to matter.
Sadly, even though class warfare is deleterious for everyone, the
Democrats will continue to vilify corporations because it is their
nature and to do not do so could cause them to lose votes
among the permanently resentful. That's why some opulent
Democratic leaders, who are occasionally veterans of Wall
Street, pretend that the stock market is not a source of wealth
but instead an unstable pyramid scheme. With the Tyco and
Enron scandals, along with the recent Martha Stewart trial, the
left now has considerable populist fire power with which to
oppose equity based solutions.
The real issue with Social Security is discovering a partial
solution that will point us in the direction of solvency. As I see it,
the most practicable method of improving the boondoggle is to
establish privatized accounts which invest exclusively in the
United States government and avoid any interactions with
corporations or the free market.
The account's investment vehicle will be exclusively Treasury
Bonds, and the interest they generate will be placed directly into
the accounts of all workers. This will provide citizens with
positive reinforcement as they save their way to independence.
The average enrollee will realize an actual return higher than what
the program garners today, and it will be above the level of
inflation as well (the yield for 10 year bonds is currently just over
4%).
A modest and non-threatening amount, such as one half of one
percent, should be set aside at onset and enrollment should be
applicable only to those who are currently working. In order for
this reform to have a chance at becoming law, we must also
guarantee that no current retirees will have any of their benefits
altered.
There will be no cutoff for contributions as there are at present.
If someone makes $200,000 a year then they should have the
option of depositing $1,000 into their escrow.
Another benefit of the plan is the lack of federal access to the
account's principal and interest. What one saves is what one
receives and all accumulated funds will be released to the
participant upon retirement. Further, as a means to cut costs,
statements from the accounts will be sent out alongside the
annual updates we presently receive.
The Democratic Party, of course, will oppose even this modest
reform, but they could not do so for long as it would mean
questioning the reliability of the government– which is a god they
hold dearer than all others. The plan's biggest dividend is that it
takes away all argumentative ground from the liberals. Would
they dare call government debt a risky scheme? Would they
argue that obligations hidden in the morass of the general fund
are more secure than account balances people can access for
themselves?
My solution is admittedly Bushian in its limited scope. Obviously
it does not solve most of Social Security's financial problems, but
it does aim the program in a more logical direction. Furthermore,
personal accounts will separate workers from the government's
narcoleptic teat (which is a tremendous victory in itself). It is
hoped that through individual enrollment, the average person will
realize a more prosperous and enhanced role in our wonderful
American enterprise.
Bernard Chapin is a writer living in Chicago. He can be reached
at bchapafl@hotmail.com.
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